Notes 1

Question 1

Profitability Index

Answer 1

PV Benefits /

Cost

Question 2

Dollars to break even

Answer 2

Annual Fixed Costs /

Contribution Margin Ratio

Question 3

Contribution Margin Ratio

Answer 3

(Sales - Variable Cost) /

Sales

Question 4

Payback

Answer 4

Investment /
Annual CF

OR

Investment /
(CF * (1+t%)) + (Investment / N * t%)

Discounted Payback = 1st discount CF to PV then above operation

Question 5

Payback Period

Answer 5

Initial Investment/

Increase in after-tax CF or Annual CF

Question 6

Accounting Rate of Return

Answer 6

Annual Net Income /
Average Investment or Initial Investment

OR

Net Cash inflow - Depreciation /
Investment

Question 7

Net Present Value

Answer 7

PV of Future CF - Required Investment

Includes Salvage, NOT Depreciation unless taxes apply, then include the tax benefit

Question 8

Internal Rate of Return

Answer 8

PV of Investment today = TVMF * Cash Flows

OR

PV Factor = Investment / Cash Flows

Question 9

Interest

Answer 9

Principal * Rate * Time

Question 10

Gross Domestic Product (GDP)

Answer 10

~GICE~

Gov’t Spending
+ Investment by Private Industry
+ Consumption (Consumer Spending)
+ Exports

OR

Net Income
+ Indirect Business Taxes
+ Capital Consumption Allowance
+ Foreign Factor Income

DOES NOT INCLUDE:
Financial Transactions
Second-hand Sales

Question 11

Net Domestic Product (NDP)

Answer 11

GDP

• Capital Consumption Allowance
• Depreciation

Question 12

Net National Income

Answer 12

Net Domestic Product (NDP)
- Foreign Factor Income
- Indirect Business Taxes
+ Net Income Earned Abroad

Question 13

National Income

Answer 13

Compensation of Employees
\+ Rental Income
\+ Interest Income
\+ Proprietor's Income
\+ Corporate Profits

OR

Business Income 
\+ Passive Income
\+ Taxes
\+ Employee Salaries
\+ Depreciation
\+ Foreign Income Adjustments

Question 14

Objectives of COSO Internal Controls (IC)

Answer 14

1. Operations
2. Reporting
3. Compliance

NOT Strategic

Question 15

Objectives of COSO Enterprise Risk Management (ERM)

Answer 15

1. Operations
2. Reporting
3. Compliance
4. Strategic

Question 16

Components of COSO Internal Controls (IC)

Answer 16

~ Control Activity Risk through Information & Monitoring of the Control Environment ~

~CRIME~

1. Control Activities
2. Risk Assessment
3. Information & Communication
4. Monitoring Activities
5. Control Environment

Question 17

Components of COSO Enterprise Risk Management (ERM)

Answer 17

~ Risk Assessment Internally & Objectively Controls the Risk Response through Information & Monitoring of Event Identification ~

~RIO CRIME~

1. Risk Response
2. Internal Environment
3. Objective Setting
4. Control Activities
5. Risk Assessment
6. Information & Communication
7. Monitoring
8. Event Identification

Question 18

Marginal Propensity to Save

Answer 18

Change in Savings /

Change in Income

Question 19

Marginal Propensity to Consume

Answer 19

Change in Spending /

Change in Income

Question 20

Price Elasticity of Demand

Answer 20

% Change in Quantity Demanded /

% Change in Price

Question 21

Income Elasticity of Demand

Answer 21

% Change in Quantity Demanded /

% Change in Income

Question 22

Difference between
Demand Pull Inflation
Cost Push Inflation

Answer 22

Demand Pull = increased spending, demand increasing (shifts right)

Cost Push = increased cost of production, supply decreases (shifts left)

Question 23

Calculate GDP using the Income Approach

Answer 23

National Income 
\+ Indirect Taxes
- Other & statutory discrepancy
= Net National Product (NNP)
\+ Consumption of Fixed Capital
= Gross National Product (GNP)
\+ Payments of factor income to other countries
- Receipts of labor income from other countries
= Gross Domestic Product (GDP)

Question 24

Calculate GDP using the Expenditure Approach

Answer 24

Personal Consumption Expenditures
\+ Gross private domestic fixed investment
\+ Government Purchases
- Net Exports
- Changes in business inventories
= Gross Domestic Product

Question 25

Economic Cost

Answer 25

Explicit + Implicit Cost
AKA
Lateral Cost + Opportunity Cost

Question 26

Economic Profit

Answer 26

Revenue - Economic Cost

Question 27

Accounting Profit

Answer 27

Revenue - Accounting Cost

Question 28

Accounting Cost

Answer 28

Explicit Cost (aka Actual Cost)

Question 29

Balanced Scorecard

Answer 29

~ CLIFf ~
~ The Balanced Scorecard can jump off a CLIFF ~

1. Customer
2. Learning & Growth
3. Internal Business Processes
4. Financial

Question 30

Business Risk

Answer 30

~ MICS ~

1. Market Risk
2. Interest Rate Risk
3. Credit/Default Risk
4. Sector Risk

Question 31

How is Abnormal Spoilage treated

Answer 31

Charged against Period Income (i.e. expensed) as a separate component of COGS

Question 32

Types of Conforming Cost vs Non-conforming costs

Answer 32

~ CPA NIcE ~

Conforming:
Prevention = employee training, preventative maintenance, supplier education
Appraisal = quality inspectors, materials inspection

Non-conforming:
Internal = scrap
External = product recalls, processing product returns

Question 33

Relative Level of Risk

Answer 33

Standard Deviation /

Expected Return

Question 34

R Squared

Answer 34

Coefficient of determination

Proportion of the total variation of the dependent variable explained by the independent variable

Question 35

P Value

Answer 35

Likelihood that tested data could have occurred by chance

Question 36

Standard Error

Answer 36

Measure of the standard deviation

Average variability of a sampling distribution

Question 37

T Statistic

Answer 37

Used in hypothesis testing

Used in computation of confidence levels

Question 38

Economic Rate of Return on common stock

Answer 38

(Dividends + Change in price) /

Beginning price